Fewer filings and greater attention to enforcement mark the CFIUS CY2023 report to Congress

The Committee on Foreign Investment in the United States (CFIUS or the Committee) issued its Annual Report to Congress for calendar year 2023 (Report). Ten highlights follow:

The number of filings dropped. 

CFIUS reviewed a total of 342 filings in 2023, 440 filings in 2022 and 436 in 2021. A total of 109 declarations (short-form filings) were filed in 2023, down nearly 30 percent from 2022 and the lowest number of declarations during a one-year period since 2019. Notices (long-form filings) dropped approximately 18 percent to 233 from an all-time high of 286 in 2022.  The reduction in filings is likely the result of multiple factors, including market conditions, the number of transactions that triggered mandatory CFIUS filings, and, as always, for transactions that did not trigger mandatory CFIUS filings, parties’ perceptions of the national security implications of their transactions.    

Canada remained the top foreign investor home country for declarations filed.

Canada continued to hold the top spot for declarations filed; however, the 13 declarations filed in 2023 reflect more than a 40 percent drop over 2022. Japan remained in the second position, but also dropped almost 40 percent, from 18 declarations in 2022 to 11 in 2023.  In 2023 France tied Japan for second, having increased by approximately 22 percent from nine declarations filed in 2022 to 11 declarations in 2023. From 2021 to 2023, Canada filed the highest number of declarations at 57, followed by Japan (40), Germany and South Korea (32), and the United Kingdom (UK) (30). Chinese declarations dropped from five in 2022 to only two in 2023, likely continuing to reflect market conditions and parties’ recognition that CFIUS is unlikely to clear Chinese investments through the declaration route.

A larger proportion of declarations “cleared”. 

Of the 109 declarations submitted in 2023, approximately 76 percent were “cleared” (i.e., CFIUS notified the parties that it had concluded all action after completion of its 30-day declaration assessment), up from approximately 58 percent in 2022, reflecting the highest percentage of cleared declarations since CFIUS introduced them in November 2018. For declarations filed in 2023, CFIUS requested that parties file a notice with CFIUS at a lower rate than in 2022. In 2023, for approximately 18 percent of the declarations filed, CFIUS requested that the parties file a notice, compared to approximately 32 percent in 2022.  The increased percentage of cleared declarations likely reflects improvements in CFIUS’s efficiency in evaluating the national security implications of transactions in the declaration’s 30-day assessment window and the public’s refined understanding of the types of transactions that CFIUS is likely to clear through the declaration process.

China regained the top spot from Singapore for notices filed.

Although CFIUS notices from China in 2023 dropped from the levels of 2022 and 2021, China regained the top spot as the foreign country from which the most notices were filed. Of the 233 notices filed in 2023, 33 notices (approximately 14 percent) involved Chinese investments.  Notices from the United Arab Emirates (UAE) were in the second spot, having doubled to 22 notices in 2023 from 11 in 2022. Singapore and the UK shared the third position with 19 notices each. The number of notices from Singapore in 2023 was less than half of the number filed in 2022, and notices from the UK dropped by approximately 17 percent from 2022 to 2023.

Few declarations and notices involved covered real estate transactions. 

Of the 233 notices and 109 declarations CFIUS reviewed in 2023, two notices and three declarations were filed pursuant to 31 C.F.R part 802, CFIUS’s real estate regulations. Of the 286 notices and 154 declarations that CFIUS reviewed in 2022, only one notice and five declarations were filed under CFIUS’s real estate regulations.  The small number of CFIUS real estate filings likely reflects that many transactions involving foreign acquisitions of U.S. real estate instead fall within CFIUS’s investment regulations, 31 C.F.R part 800, because the foreign person is not acquiring the U.S. real estate directly, but rather is acquiring a U.S. business that holds U.S. real estate assets.

In August 2023, Treasury issued a final rule on behalf of the Committee adding eight military installations to the list at appendix A of the Committee’s regulations related to real estate transactions in 31 C.F.R part 802. The final rule was effective 22 September 2023. In addition, Treasury has issued a proposed rule that would add 59 military installations to the list of installations in the regulations and amend the definition of military installation. Please see our alert for more information on the proposed rule.         

Notice turnaround is somewhat longer.

In 2023, approximately 55 percent of CFIUS’s reviews of notices proceeded to a second-stage investigation, only a slight reduction from approximately 57 percent in 2022. For cases that proceeded to an investigation in 2023, on average, CFIUS closed these cases 85.8 calendar days after it formally accepted the notice, compared to 80.5 calendar days in 2022.

The menu of mitigation measures expanded while the proportion of transactions subject to mitigation held steady.

Although the number of cases for which CFIUS adopted mitigation measures and conditions dropped to 43 cases in 2023 from 52 instances in 2022, the percentage of total notices subject to mitigation held constant at approximately 18 percent.

For 35 distinct notices filed in 2023, CFIUS imposed mitigation measures (approximately 21 percent of the distinct 2023 notices). In comparison, in 2022, CFIUS imposed mitigation in connection with 41 distinct notices (approximately 23 percent of the distinct 2022 notices filed).

In 2023, CFIUS imposed measures to address interim risks for one matter and imposed conditions with respect to six withdrawn and abandoned transactions. In one instance CFIUS entered into a mitigation agreement with the parties, which voluntarily withdrew their notice and abandoned the transaction.

The Report identified mitigation measures CFIUS imposed in 2023 that were not listed in the 2022 Annual Report such as: ensuring that computer networks were segregated; destroying sensitive information; ensuring that potential conflicts of interest involving third-party monitors, third-party auditors, security officers, and security directors would not arise or would be disclosed to the CFIUS Monitoring Agencies; establishing processes to review and approve contracts involving third parties before granting access to systems or data; and ensuring that businesses would notify customers regarding the identity of ultimate beneficial owners.

The Report also identifies mitigation measures that have been reported in the past but were modified when imposed in 2023 including: adding a communications policy to the list of reporting obligations; adding board observer to the list of positions whose appointment the US government might be required to approve; and expanding the security protocol for products or software sold to the US government to cover both direct and indirect supply.  Parties to transactions before CFIUS would be well-advised to review the wide range of mitigation measures that CFIUS might impose.

Civil penalties and voluntary disclosure underscore compliance and enforcement efforts.

As of year-end 2023, CFIUS was monitoring 246 mitigation agreements and conditions. The Committee reported that it assessed four civil monetary penalties in 2023 in connection with breaches of material provisions in mitigation agreements, noting that this figure was “double the number of penalties issued in CFIUS’s nearly 50-year history.”  CFIUS also issued “the first ever formal determinations of noncompliance specifically in connection with failure to comply with mandatory filing provisions under 31 C.F.R. § 800.401” following “several investigations” while no penalties were assessed.  2023 also saw the first voluntary disclosure of a potential failure to file a CFIUS mandatory declaration.  We expect CFIUS to continue its increased focus on compliance and enforcement, including in connection with parties’ failure to comply with CFIUS’s mandatory filing programs.

CFIUS’s non-notified transaction inquiries continue to decline but are more likely to result in a formal filing request. 

The number of non-notified/non-declared transactions for which CFIUS initiated an inquiry continued to trend downward.  In 2023, Treasury opened non-notified inquiries for 60 transactions, falling from 84 in 2022, and 135 in 2021. While the number of non-notified inquiries initiated has steadily declined since 2021, the number of non-notified inquires that resulted in a request for a filing increased, both as a percentage of inquiries and whole numbers, from approximately 6 percent (8) in 2021, to approximately 13 percent (11) in 2022, to approximately 22 percent (13) in 2023.  This trend suggests that CFIUS has refined its process for pursuing non-notified transactions, resulting in more of the Committee’s inquiries involving transactions subject to CFIUS’s jurisdiction.

Withdrawn notices declined below 2021 levels. 

In 2023, parties to transactions reviewed by CFIUS withdrew 57 of 233 notices or approximately 24 percent, down from 31 percent in 2022 and 27 percent in 2021.  In 2023, the parties refiled their notices in 43 of these instances.  In nine of the transactions that were not refiled, the parties withdrew the notice and abandoned the underlying transactions for national security reasons (i.e., because CFIUS informed the parties that it was unable to identify mitigation measures that would resolve its national security concerns or because CFIUS proposed mitigation measures that the parties chose not to accept). These nine transactions represent approximately four percent of the total notices in 2023, comparable to the percentage in 2022.

Next steps

Early recognition in the dealmaking process of potential CFIUS issues can assist parties in addressing any national security risks and in maintaining the deal timeline by making any submissions to CFIUS in a timely manner. Accordingly, parties should assess as soon as possible whether their transactions are subject to CFIUS’s jurisdiction or its mandatory filing programs, including by conducting critical technologies assessments well ahead of signing. For assistance in conducting these assessments or for further information or assistance regarding transactions potentially subject to CFIUS’s jurisdiction or general CFIUS trends, please contact any of the listed Hogan Lovells attorneys.

Authored by Anne Salladin, Brian Curran and Andrea Fraser-Reid.